Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
A discussion regarding our financial condition and results of operations for year-end 2024 compared to year-end 2023 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC on February 11, 2025 (“2024 Form 10-K”).
BUSINESS AND OVERVIEW
Overview
We are a worldwide franchisor, operator, and licensor of hotel, residential, timeshare, and other lodging properties under a portfolio of compelling brands at different price and service points. We discuss our operations in the following reportable business segments: (1) U.S. & Canada, (2) Europe, Middle East & Africa (“EMEA”), (3) Greater China, and (4) Asia Pacific excluding China (“APEC”). Our Caribbean & Latin America (“CALA”) operating segment does not meet the applicable accounting criteria for separate disclosure as a reportable business segment, and as such, we include its results in “Unallocated corporate and other.”
Under our asset-light business model and consistent with our focus on franchising, management, and licensing, we own or lease very few of our lodging properties. Under our hotel franchising arrangements, we generally receive an initial application fee and continuing royalty fees, which are typically based on a percentage of room revenues, plus for certain brands, a percentage of food and beverage revenues. Terms of our management agreements vary, but we earn a management fee that is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel. In many cases (particularly in our U.S. & Canada, Europe, and CALA regions), incentive management fees are subject to a specified owner return. We also have license and other agreements with third parties for certain offerings, such as for our timeshare properties, MGM Collection with Marriott Bonvoy, Design Hotels, and The Ritz-Carlton Yacht Collection, under which we receive royalty and certain other fees. Additionally, we earn fees for other uses of our intellectual property, including primarily co-branded credit card fees, as well as residential branding fees and certain other licensing fees.
Performance Measures
We believe Revenue per Available Room (“RevPAR”), which we calculate by dividing property level room revenue by total rooms available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues. RevPAR may not be comparable to similarly titled measures, such as revenues, and should not be viewed as necessarily correlating with our fee revenue. We also believe occupancy and average daily rate (“ADR”), which are components of calculating RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing total rooms sold by total rooms available for the period, measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property level room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels. Unless otherwise stated, RevPAR, occupancy, and ADR statistics are on a systemwide basis for comparable properties, and all changes refer to year-over-year changes for the comparable period. Comparisons to prior periods are on a constant U.S. dollar basis, which we calculate by applying exchange rates for the current period to the prior comparable period. We believe constant dollar analysis provides valuable information regarding the performance of hotels in our system as it removes currency fluctuations from the presentation of such results.
We define our comparable properties as hotels in our system that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2024 for the current period) and have not, in either the current or previous year: (1) undergone significant room or public space renovations or expansions, (2) been converted between company-operated and franchised, or (3) sustained substantial property damage or business interruption. Our comparable properties also exclude MGM Collection with Marriott Bonvoy, Design Hotels, The Ritz-Carlton Yacht Collection, residences, and timeshare properties. For 2025, we had 5,554 comparable U.S. & Canada properties and 2,011 comparable International properties.
Business Trends
In 2025, worldwide RevPAR increased 2.0 percent compared to 2024, driven by ADR growth of 2.1 percent.
In the U.S. & Canada, RevPAR increased 0.7 percent in 2025, reflecting strong demand at our luxury hotels, partially offset by softer demand at our select service hotels, which were impacted by weaker business transient demand, in part due to declines in government travel.
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In our International regions, RevPAR increased 5.1 percent in 2025, reflecting higher demand in most countries across the APEC, EMEA, and CALA regions. In Greater China, RevPAR increased 0.4 percent, reflecting softness in macro-economic conditions during the year.
Starwood Data Security Incident
On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). We are currently unable to reasonably estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already recorded; however, we do not believe this incident will impact our long-term financial health. See Note 7 for additional information related to legal proceedings, investigations, and insurance recoveries related to the Data Security Incident.
System Growth and Pipeline
Our system grew from 9,361 properties (1,706,331 rooms) at year-end 2024 to 9,805 properties (1,779,936 rooms) at year-end 2025. The increase compared to year-end 2024 reflected gross additions of 703 properties (99,459 rooms), including the addition of 37 properties (8,789 rooms) from the citizenM brand acquisition discussed in Note 3, and deletions of 253 properties (25,643 rooms). The property and room counts as of year-end 2025 reflect the removal of all Sonder properties from our portfolio. Our 2025 gross room additions included nearly 64,000 rooms located outside U.S. & Canada (including the citizenM brand acquisition) and roughly 33,400 rooms converted from competitor brands.
At year-end 2025, we had approximately 4,100 properties and nearly 610,000 rooms in our development pipeline, which included over 35,000 rooms approved for development but not yet under signed contracts. At year-end 2025, our development pipeline included nearly 265,000 rooms, or 43 percent, that were under construction, including hotels that are in the process of converting to our system. Over half of the rooms in our development pipeline were located outside U.S. & Canada.
In 2025, we signed nearly 1,200 development deals with hotel owners and other counterparties (excluding the citizenM acquisition) representing approximately 163,000 rooms globally. Over 30 percent of rooms signed were driven by conversion opportunities. During 2025, we added three new brands to our portfolio through the citizenM brand acquisition and the introductions of Series by Marriott and the Outdoor Collection by Marriott Bonvoy. We continued to expand our portfolio across chain scales, including advancing the expansion of our midscale offerings, and we also continued to strengthen our residential portfolio, signing 55 residential agreements in 2025.
In 2026, we expect net rooms growth of 4.5 to 5.0 percent.
Properties and Rooms
The following table shows our properties and rooms by ownership type.
Properties
Rooms
December 31, 2025
December 31, 2024
vs. December 31, 2024
December 31, 2025
December 31, 2024
vs. December 31, 2024
Franchised/Licensed/Other (1)
Managed
Owned/Leased
Residential
Total
(1) Licensed and other properties include our timeshare properties, MGM Collection with Marriott Bonvoy, Design Hotels, and The Ritz-Carlton Yacht Collection.
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Lodging Statistics
The following table presents RevPAR, occupancy, and ADR statistics for comparable properties for 2025, and 2025 compared to 2024. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.
RevPAR
Occupancy
Average Daily Rate
Comparable Company-Operated Properties
U.S. & Canada
pts.
Europe
pts.
Middle East & Africa
pts.
Greater China
pts.
Asia Pacific excluding China
pts.
Caribbean & Latin America
pts.
International - All (1)
pts.
Worldwide (2)
pts.
Comparable Systemwide Properties
U.S. & Canada
pts.
Europe
pts.
Middle East & Africa
pts.
Greater China
pts.
Asia Pacific excluding China
pts.
Caribbean & Latin America
pts.
International - All (1)
pts.
Worldwide (2)
pts.
(1) Includes Europe, Middle East & Africa, Greater China, Asia Pacific excluding China, and Caribbean & Latin America.
(2) Includes U.S. & Canada and International - All.
CONSOLIDATED RESULTS
The discussion below presents an analysis of our consolidated results of operations for 2025 compared to 2024. Also see the “Business Trends” section above for further discussion. In the 2025 fourth quarter, we reclassified amounts attributable to other expenses previously reported under the “General, administrative, and other” caption to the “Owned, leased, and other expense” caption of our Income Statements. See Note 1 for further information.
Fee Revenues
($ in millions)
Change 2025 vs. 2024
Franchise fees
Base management fees
Incentive management fees
Gross fee revenues
Contract investment amortization
Net fee revenues
The increase in franchise fees primarily reflected higher co-branded credit card and other brand-related fees ($105 million) as well as rooms growth ($94 million).
The increase in base management fees primarily reflected higher RevPAR as well as rooms growth ($25 million).
The increase in incentive management fees primarily reflected higher profits at managed hotels. In both 2025 and 2024, we earned incentive management fees from 69 percent of our managed hotels worldwide. We earned incentive management fees from 32 percent of our U.S. & Canada managed hotels and 85 percent of our International managed hotels in 2025, compared to 31 percent in U.S. & Canada and 85 percent in International in 2024. In addition, in both 2025 and 2024, 67 percent of our total incentive management fees came from our International managed hotels, primarily in EMEA and APEC.
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Owned, Leased, and Other
($ in millions)
Change 2025 vs. 2024
Owned, leased, and other revenue
Owned, leased, and other expense
Owned, leased, and other revenue, net of owned, leased, and other expense
Owned, leased, and other revenue, net of owned, leased, and other expense, decreased primarily due to expenses related to the termination of our licensing agreement with Sonder Holdings Inc. ($23 million), partially offset by stronger results at our owned and leased properties in the U.S. & Canada, which included the results from the Sheraton Grand Chicago hotel that we acquired in the fourth quarter of the prior year.
Cost Reimbursements
($ in millions)
Change 2025 vs. 2024
Cost reimbursement revenue
Reimbursed expenses
Cost reimbursements, net
Cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) varies due to timing differences between the costs we incur for centralized programs and services and the related rei mbursemen ts we receive from hotel owners and certain other counterparties. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. See Note 2 for more information about the accounting for cost reimbursements, including our Loyalty Program.
The change in cost reimbursements, net primarily reflected higher Loyalty Program revenues, partially offset by higher expenses, net of revenues, for many of our programs and services.
Other Operating Expenses
($ in millions)
Change 2025 vs. 2024
Depreciation, amortization, and other
General and administrative
Restructuring and merger-related (recoveries) charges, and other
General and administrative expenses decreased primarily due to lower compensation costs ($39 million).
Restructuring and merger-related (recoveries) charges, and other expenses changed primarily due to insurance recoveries related to the Data Security Incident discussed in Note 7 ($47 million), lower restructuring charges for employee termination benefits ($34 million), and a prior year reserve for a loan commitment related to the Company’s acquisition of Starwood ($30 million).
Non-Operating Income (Expense)
($ in millions)
Change 2025 vs. 2024
Gains and other income, net
Interest expense
Interest income
Equity in earnings
Interest expense increased primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($129 million).
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Income Taxes
($ in millions)
Change 2025 vs. 2024
Provision for income taxes
Our tax provision increased primarily due to higher non-U.S. taxes mainly from increased tax rates ($90 million) and higher pre-tax income ($62 million), partially offset by the current year release of tax reserves ($137 million).
BUSINESS SEGMENTS
The following discussion presents an analysis of the operating results of our reportable business segments for 2025 compared to 2024. Also see the “Business Trends” section above for further discussion.
($ in millions)
Change 2025 vs. 2024
U.S. & Canada
Segment net fee revenues
Segment profit
EMEA
Segment net fee revenues
Segment profit
Greater China
Segment net fee revenues
Segment profit
APEC
Segment net fee revenues
Segment profit
Properties
Rooms
December 31, 2025
December 31, 2024
vs. December 31, 2024
December 31, 2025
December 31, 2024
vs. December 31, 2024
U.S. & Canada
EMEA
Greater China
APEC
In 2025, segment net fee revenues grew in the U.S. & Canada, EMEA, and APEC compared to 2024, primarily driven by rooms growth and higher RevPAR (see the Lodging Statistics and Properties and Rooms tables above for more information).
Additionally, U.S. & Canada segment profit reflected higher owned, leased, and other revenue, net of owned, leased, and other expense ($56 million), partially offset by lower cost reimbursement revenue, net of reimbursed expenses ($34 million). Owned, leased, and other revenue, net of owned, leased, and other expense increased primarily due to stronger results at our owned and leased properties, which included the results from the Sheraton Grand Chicago hotel that we acquired in the fourth quarter of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Our Credit Facility
We are party to a $4.5 billion multicurrency revolving credit agreement (as amended, the “Credit Facility”). Available borrowings under the Credit Facility support our commercial paper program and general corporate needs. U.S. dollar borrowings under the Credit Facility bear interest at SOFR (the Secured Overnight Financing Rate) plus a spread based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (which generally have short-term maturities of 45 days or less) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on December 14, 2027.
The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility) to not more than 4.5 to 1.0. Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain
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financial ratios. We currently satisfy the covenants in our Credit Facility and public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants will restrict our ability to meet our anticipated borrowing and liquidity needs.
We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to fund our liquidity needs. We believe the Credit Facility, and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet our liquidity requirements over the next 12 months and thereafter for the foreseeable future.
Commercial Paper
We issue commercial paper in the U.S. Because we do not have purchase commitments from buyers for our commercial paper, our ability to issue commercial paper is subject to market demand. We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility and access to capital markets.
Cash from Operations
Net cash provided by operating activities increased by $463 million in 2025 compared to 2024. The increase reflected a cash outflow in the prior year of $300 million in the “Restructuring and merger-related (recoveries) charges, and other” caption of our Statements of Cash Flows for the settlement of the guarantee liability associated with the purchase of the Sheraton Grand Chicago.
Our ratio of current assets to current liabilities was 0.4 to 1.0 at both year-end 2025 and year-end 2024. We have significant borrowing capacity under our Credit Facility should we need additional working capital.
Investing Activities Cash Flows
Capital Expenditures and Other Investments. We made capital and technology expenditures of $604 million in 2025 and $750 million in 2024. Capital and technology expenditures in 2025 decreased by $146 million compared to 2024, primarily due to approximately $200 million of spending related to the Sheraton Grand Chicago capitalized assets in 2024. In 2025, we also had cash outflows of $350 million due to the citizenM brand acquisition, which we discuss in Note 3.
We expect capital expenditures and other investments will total approximately $1.0 billion to $1.1 billion for 2026, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities, but excluding any potential property or brand acquisitions, which we cannot forecast with sufficient accuracy and which may be significant. Our anticipated capital and technology expenditures include higher than typical spending on our worldwide technology systems transformation, the overwhelming portion of which we expect to be reimbursed over time, and renovations of hotels in our owned and leased portfolio.
Over time, we have sold lodging properties, both completed and under development, generally subject to long-term management agreements. Our ability to attract third-party purchasers, and their ability to raise the debt and equity capital necessary to acquire such properties, depends in part on the perceived risks in the lodging industry and other constraints inherent in the capital markets. We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations. We have made, and expect to continue making, selective and opportunistic investments to add units to our lodging business, which may include property acquisitions and renovations, new construction, loans, guarantees, and equity investments. Over time, we seek to minimize capital invested in our business through asset sales subject to long-term management or franchise agreements.
Financing Activities Cash Flows
Debt. Debt increased by $1,757 million in 2025, to $16,204 million at year-end 2025 from $14,447 million at year-end 2024, primarily due to the issuances of our Series RR Notes and Series SS Notes ($1,960 million) and our Series TT Notes, Series UU Notes, and Series VV Notes ($1,477 million), partially offset by the maturity of our Series P Notes, Series V Notes, and Series EE Notes ($350 million, $318 million, and $600 million, respectively), and net commercial paper repayments ($403 million). See Note 9 for additional information on Senior Notes issuances.
Our long-term financial objectives include maintaining diversified financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2025, including the effect of interest rate swaps, our total long-term debt (current and noncurrent) had a weighted average interest rate of 4.5 percent, a weighted average maturity of approximately 5.4 years, and a ratio of fixed-rate to total long-term debt of 0.9 to 1.0.
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See the “Our Credit Facility” caption in this “Liquidity and Capital Resources” section for more information on our Credit Facility.
Share Repurchases and Dividends. We repurchased 12.1 million shares of our common stock for $3.3 billion in 2025. Year-to-date through February 6, 2026, we repurchased 1.1 million shares for $350 million. For additional information, see “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities” in Part II, Item 5.
Our Board declared the following quarterly cash dividends in 2025: (1) $0.63 per share declared on February 13, 2025 and paid on March 31, 2025 to stockholders of record on February 27, 2025; (2) $0.67 per share declared on May 9, 2025 and paid on June 30, 2025 to stockholders of record on May 23, 2025; (3) $0.67 per share declared on August 7, 2025 and paid on September 30, 2025 to stockholders of record on August 21, 2025; and (4) $0.67 per share declared on November 6, 2025 and paid on December 31, 2025 to stockholders of record on November 20, 2025.
We expect to continue to return cash to stockholders through a combination of share repurchases and cash dividends.
Material Cash Requirements
Our material cash requirements include the following contractual obligations and off-balance sheet arrangements.
• At year-end 2025, we had $16,204 million of debt plus $4,159 million of future interest payments, of which a total of $1,896 million is payable within the next 12 months from year-end 2025. See Note 9 for further information about our long-term debt and Note 8 for further information about our finance leases.
• We enter into operating leases primarily for hotels, offices, and equipment, which are discussed in Note 8.
• The Company had guarantees and letters of credit as of year-end 2025, which are discussed in Note 7. The majority of our remaining guarantee commitments are not expected to be funded within the next 12 months from year-end 2025.
• In connection with the citizenM brand acquisition discussed in Note 3, we may pay earn-out payments up to $110 million to citizenM Holding BV and certain of its affiliates based on the future growth of the brand over a specified, multi-year timeframe. Earn-out payments would not begin until the fourth year following closing of the transaction.
• In the normal course of business, we enter into purchase commitments related to the programs and services that we typically provide to hotel owners, and we incur other obligations to manage the daily operating needs of the hotels that we manage. Since hotel owners are generally responsible for these costs, these obligations are not expected to have a material impact on our net income and cash flow over the long term.
NEW ACCOUNTING STANDARDS
See Note 2 for information on our anticipated adoption of recently issued accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting policy and estimate to be critical if: (1) we must make assumptions that were uncertain when the estimate was made; and (2) changes in the estimate, or selection of a different estimate methodology could have a material effect on our consolidated results of operations or financial condition.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate or assumption was made. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments due to unforeseen events or otherwise could have a material impact on our financial position or results of operations.
See Note 2 for further information related to our critical accounting policies and estimates, which are as follows:
Loyalty Program , including how we estimate the breakage of hotel points, credit card points, and free night certificates, the volume of points and free night certificates that will be issued under our co-branded credit card agreements, the amount of consideration to which we will be entitled under our co-branded credit card agreements, and the stand-alone selling prices of goods and services provided under our co-branded credit card agreements. Changes in these estimates could result in material changes to our liability for guest loyalty program and Loyalty Program
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revenue. Based on the conditions existing at December 31, 2025 and holding other factors constant, a one percent decrease in our estimate of the breakage of points could result in an increase in the liability for guest loyalty program of approximately $50 million. The breakage impact may vary significantly depending on the specific Loyalty Program points for which the anticipated breakage changes.
Goodwill , including how we evaluate the fair value of reporting units and when we record an impairment loss on goodwill. Our reporting units are the same as our operating segments. See Note 14 for more information. During the 2025 fourth quarter, we conducted our annual goodwill impairment test, and no impairment charges were recorded. The estimated fair values of all our reporting units significantly exceeded their carrying amounts at the date of their most recent estimated fair value determination.
Intangibles and Long-Lived Assets , including how we evaluate the fair value of intangibles and long-lived assets and when we record impairment losses on intangibles and long-lived assets. During 2025, we evaluated our intangibles and long-lived asset groups for impairment and did not record any material impairment charges. The estimated fair values of all our indefinite-lived intangible assets significantly exceeded their carrying amounts at the date of their most recent estimated fair value determination.
